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before submission of these cases. Petitioners have stipulated
that the portion of the EWA proceeds that was paid over to
Western General “was * * * properly included in [petitioners’]
income over the terms of the EWA in accordance with Revenue
Procedure 92-98". (Emphasis added.) Second, to the extent there
is any conceivable ambiguity in this stipulation (and we do not
suggest that there is), we believe that respondent is correct
that he did not receive “fair warning” of petitioners’ intention
to raise any issue concerning income inclusion.
As a pleading, the petition has as its purpose “to give the
parties and the Court fair notice of the matters in controversy”.
Rule 31(a). Generally speaking, issues not raised in the
assignments of error in the petition are deemed conceded. See
Rule 34(b)(4). Whether issues not raised in the pleadings will
nonetheless be considered is a matter for the Court’s discretion,
taking into account the prejudice to the opposing party.
The rule that a party may not raise a new issue on
brief is not absolute. Rather, it is founded upon the
exercise of judicial discretion in determining whether
considerations of surprise and prejudice require that a
party be protected from having to face a belated
confrontation which precludes or limits that party’s
opportunity to present pertinent evidence. * * * [Ware
v. Commissioner, 92 T.C. 1267, 1268 (1989), affd. 906
F.2d 62 (2d Cir. 1990).]
It is clear that petitioners did not provide notice in their
petitions of an intention to contest the inclusion in income of
the amounts paid to Western General. The error alleged in the
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